Bombay High Court Expresses Concern On Misuse Of IBC To Stall SARFAESI Proceedings; Quashes DRT Order Halting Possession Of Secured Asset

The Court was hearing a writ petition challenging an order passed by the Debts Recovery Tribunal restraining the secured creditor from proceeding further with possession of a secured asset despite the completion of the auction and issuance of the sale certificate.

A Division Bench of Justice Manish Pitale and Justice Shreeram V. Shirsat, upon decided the matter at hand, observed: “In a number of such matters, it is found that the borrowers/ guarantors act as fence sitters and do not take any steps when the secured creditors proceed under Section 13(2) of the Securitisation Act and take further consequential steps, till the culmination of the process and auction purchasers coming into the picture. At the stage when the auction sale has been conducted and the auction purchaser has come into the picture, in a few instances, even after the sale certificate is issued, when physical possession of the secured asset is about to be handed over to the auction purchaser, the original borrowers/guarantors initiate collusive proceedings under Section 94 or Section 95 of the IBC, claiming triggering of moratorium under Section 96 thereof, the moment such proceedings are filed before the National Company Law Tribunal (NCLT)”.

“As a consequence, all steps taken under the provisions of the Securitisation Act suddenly come to a standstill, and such borrowers/guarantors, who are defaulters, wear a cloak of immunity under the garb of moratorium triggered under Section 96 of the IBC. In such a situation, the secured creditor and/or the auction purchaser are required to approach the NCLT, and thereafter, the proceedings reach the National Company Law Appellate Tribunal (NCLAT) and then the Supreme Court, till which time the auction purchaser is completely frustrated, despite having parted with consideration in terms of the bid amount”, the Bench further explained.

Advocate Siddharth Samantaray appeared for the petitioners, while Advocates Charles Dsouza and Kruti Bhavsar appeared for the respondents.

Background

The dispute arose from credit facilities extended by the respondent bank to borrower entities, secured by a mortgage of immovable property. Upon default, proceedings were initiated under the SARFAESI Act, including the issuance of notice under Section 13(2) and subsequent steps for the enforcement of the security interest.

Despite multiple opportunities and repeated one-time settlement proposals, the borrowers failed to regularise the account. Several auction attempts failed before a successful auction was conducted, culminating in the issuance and registration of a sale certificate in favour of the petitioners as auction purchasers.

At this stage, the borrowers and guarantors then initiated proceedings under Sections 94 and 95 of the IBC before the National Company Law Tribunal, claiming that an interim moratorium under Section 96 stood triggered, thereby halting SARFAESI proceedings.

Although the NCLT, NCLAT and the Supreme Court upheld that the secured asset stood excluded from the moratorium, further proceedings were initiated before another forum under the IBC, and an application was filed before the DRT seeking to stall possession on the ground of fresh moratorium.

The DRT, by the impugned order, effectively halted further steps by the secured creditor, leading to the present writ petition.

Court’s Observation

The Court undertook a detailed examination of the sequence of events and found that the conduct of the borrowers and guarantors revealed a deliberate pattern of obstruction and abuse of statutory remedies.

The Court stressed that “the manner in which the defaulting borrowers and guarantors have been taking recourse to the provisions of the IBC, particularly Sections 94, 95 and 96 thereof, shows that such strategies are frustrating the very object of the IBC, apart from paralyzing the whole process of lawful steps taken by secured creditors in respect of secured assets under the provisions of the Securitisation Act”.

The Court found that proceedings under the IBC were initiated only after the auction process had reached culmination and rights of third-party auction purchasers had crystallised.

It was observed that “…after more than seven years of the notice issued under Section 13(2) of the Securitisation Act and after more than five years of the competent Magistrate allowing the application of the respondent No.2-bank to take physical possession of the secured asset, for the first time on 12th December 2024, the respondent Nos.3 to 7 i.e. the borrowers and the guarantors chose to approach the DRT by filing Securitisation Application No. 215 of 2024. Instead of pressing for interim relief in the said proceeding, respondent No.7, i.e. the personal guarantor, filed the said application under Section 94 of the IBC before the NCLT at Mumbai on 24th December 2024, claiming the triggering of the moratorium”.

The Court emphasised that such conduct defeats both statutory regimes and undermines the objectives of insolvency law. It noted that the IBC is intended to ensure timely resolution and economic efficiency, and not to serve as a tool to frustrate lawful recovery proceedings. The Court further held that the repeated initiation of insolvency proceedings at different forums, including distant jurisdictions, indicated a collusive design to paralyse enforcement proceedings.

The Court also found that the DRT failed to consider the binding effect of earlier orders passed by the NCLT, NCLAT and the Supreme Court, which had already excluded the secured asset from the scope of moratorium. It held that “…in such a situation, the DRT ought not to have passed the impugned order and that such an order indicates the jurisdictional error committed by the DRT, apart from the fact that such an order results in frustrating the legal process undertaken as per the provisions of the Securitisation Act and it results in failure of justice.”

The Court further emphasised that unless the Court exercising writ jurisdiction takes note of such manifest misuse of the provisions of law and passes an order to set right the obvious wrong, the tendency of such parties to misuse provisions of law and to browbeat subordinate tribunals like the DRT will continue.

“It is in such peculiar circumstances, the Court and extreme set of facts as brought to the notice…, that writ jurisdiction is required to be exercised in the interest of justice”, the Court concluded.

Conclusion

The Court allowed the writ petition and set aside the impugned order passed by the Debts Recovery Tribunal. It was held that the secured creditor was not required to await the disposal of the said interim application and was entitled to proceed with further steps pursuant to the auction sale and registration of the sale certificate issued in favour of the petitioners.

Taking note of the conduct of the borrowers and guarantors in repeatedly obstructing the process before the Tribunal, the Court directed the Debts Recovery Tribunal to take up the securitisation application itself for consideration on merits. The secured creditor was directed to file its reply, if not already filed, and the Tribunal was directed to ensure completion of pleadings at the earliest and in any case within four weeks.

The Tribunal was further directed to take up the securitisation application for hearing and final disposal expeditiously and in any case on or before 15th May 2026, strictly in accordance with law. Pending applications were also disposed of.

Cause Title: Rozina Firoz Hajiani & Ors. v. Union of India & Ors. (Neutral Citation: 2026:BHC-OS:6969-DB)

Appearances

Petitioners: Siddharth Samantaray with Harsh Ramesh Gutka and Aayush Kothari, Advocates

Respondents: Charles Dsouza, Rupak, Anup Khaitan, Akshita Rathudi, Niomi Harshad Vakani, Kruti Bhavsar, Pratik Barot and Angel Pandey, Advocates

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